U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______ to______.
Commission File Number: 0-27445
Enviro Voraxial Technology, Inc.
--------------------------------
(Exact name of Small Business Issuer as specified in its Charter)
IDAHO 82-0266517
----- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
821 NW 57th Place, Fort Lauderdale, Florida 33309
-------------------------------------------------
(Address of principal executive offices)
(954) 958-9968
--------------
(Issuer's telephone number)
---------------------------------------------------------------
(Former Name, former address and former fiscal year, if changed
since last Report.)
Check mark whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: September 30, 2004, we had 17,676,402
shares of our Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
INDEX
PART I. CONSOLIDATED CONDENSED FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements.............................................. 3
Basis of Presentation.................................................................... 3
Consolidated Condensed Balance Sheet (unaudited) - September 30, 2004.................... 4
Consolidated Condensed Statements of Operations (unaudited) for the
Three and Nine months Ended September 30, 2004 and 2003............................... 5
Consolidated Condensed Statements of Cash Flows (unaudited) for the Nine
Months Ended September 30, 2004 and 2003.............................................. 6
Notes to Consolidated Condensed Financial Statements..................................... 7
Item 2. Management's Discussion and Analysis and Plan of Operation............................... 11
Item 3. Controls and Procedures.................................................................. 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 14
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities........... 14
Item 3. Default Upon Senior Securities........................................................... 16
Item 4. Submission of Matters to a Vote of Securities............................................ 16
Item 5. Other Information........................................................................ 16
Item 6. Exhibits and Reports on Form 8-K......................................................... 16
Signatures ......................................................................................... 17
2
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Basis of Presentation
The accompanying unaudited consolidated financial statements of Enviro Voraxial
Technology, Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation
(consisting of normal recurring accruals) have been included. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Operating results for the three-month period ended
September 30, 2004 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2004. For further information, refer
to the consolidated financial statements and footnotes for the year ended
December 31, 2003 found in the Company's Form 10-KSB.
The Company may be unable to continue as a going concern, given its limited
operations and revenues and its significant losses to date. Since 2001, the
Company has encountered greater expenses in the development of its Voraxial(TM)
Separators and has had limited sales income for the Voraxial(TM) Separators from
this development. Consequently, the Company's working capital may not be
sufficient and its operating costs may exceed those experienced in prior years.
In light of these recent developments, the Company may be unable to continue as
a going concern. However, the Company believes that the exposure received in the
past year for the Voraxial(TM) Separator has positioned the Company to generate
sales which may supply it with sufficient working capital.
3
ENVIRO VORAXIAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
ASSETS
September 30,
2004
----
Current Assets:
Cash and cash equivalents $ 440,000
Inventory 70,000
Prepaid Insurance 8,000
Prepaid consulting fees 46,000
Other current assets 5,000
-----------
Total current assets 569,000
Property, plant and equipment, net 38,000
Other assets 5,000
-----------
$ 612,000
===========
LIABILITIES
Current Liabilities:
Current portion of obligations under capital $ 2,000
Deposits from customers 5,000
Accounts payable and accrued expenses 101,000
-----------
Total current liabilities 108,000
Commitments and Contingencies
Stockholders' Deficit:
Capital stock, par value $.001 par value;
Common stock, authorized 42,750,000 shares,
17,676,402 shares issued and outstanding 18,000
Additional paid-in capital 4,906,000
Deferred Compensation (15,000)
Accumulative Deficit (4,405,000)
-----------
Total Stockholders' Deficit 504,000
-----------
Total Liabilities and Stockholders' Deficit $ 612,000
===========
4
ENVIRO VORAXIAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
---- ---- ---- ----
Net sales
Product $ -- $ -- $ 1,000 $ 3,000
Rental Income 2,000 -- 13,000 --
------------ ------------ ------------ ------------
2,000 -- 14,000 3,000
Cost of goods sold -- -- -- 1,000
Product -- -- -- 1,000
------------ ------------ ------------ ------------
Gross profit 2,000 -- 14,000 2,000
------------ ------------ ------------ ------------
Other (income) and expenses:
Research and development 179,000 220,000 482,000 380,000
General and administrative 175,000 133,000 877,000 549,000
Interest expense 5,000 1,000 11,000 4,000
------------ ------------ ------------ ------------
Total costs and expenses 359,000 354,000 1,370,000 933,000
------------ ------------ ------------ ------------
Net Loss $ (357,000) $ (354,000) $ (1,356,000) $ (931,000)
============ ============ ============ ============
Basic and diluted (loss) per common share $ (.02) $ (.02) $ (.08) $ (.06)
============ ============ ============ ============
Weighted average number of common
shares outstanding 17,662,815 14,737,313 16,640,367 14,407,326
============ ============ ============ ============
5
ENVIRO VORAXIAL TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months
Ended September 30,
2004 2003
---- ----
Cash flows from operating activities:
Net Loss $(1,356,000) $ (931,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 8,000 24,000
Deferred Compensation 337,000 18,000
Amortization of equity for services 110,000 --
Stock issued for services rendered 6,000 171,000
Changes in:
Accounts receivable -- 10,000
Inventory -- 1,000
Prepaid Insurance (8,000) --
Deposits from customers 5,000 --
Accounts payable and accrued expenses (120,000) 244,000
----------- -----------
Net cash used in operating activities (1,018,000) (463,000)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 1,071,000 469,000
Notes payable - Placement Agent 250,000 --
Payments of obligations under capital leases (13,000) (21,000)
----------- -----------
Net cash provided by
financing activities 1,308,000 448,000
----------- -----------
Increase (Decrease) in cash and cash equivalents 290,000 (15,000)
Cash and cash equivalents, beginning of period 150,000 167,000
----------- -----------
Cash and cash, equivalents, end of period $ 440,000 $ 152,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 11,000 $ 4,000
Common stock for services $ 145,000 --
Options issued in settlement of accrued expenses $ 370,000 --
Conversion of notes payable to Placement Agent
To common stock $ 250,000 --
6
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - ORGANIZATION AND OPERATIONS
Enviro Voraxial Technology, Inc. (the "Company") is the owner and manufacturer
of the patented Voraxial(TM) Separator. The Voraxial(TM) Separator is a
continuous flow turbo machine that separates a mixture of fluids or fluids and
solids at extremely high flow rates while achieving very high levels of purity
through the utilization of a strong centrifugal force or vortex. The
scalability, efficiency and effectiveness of the Voraxial(TM) Separator make the
technology universal to any industry requiring the separation of liquids and/or
liquids and solids, regardless of the quantity needed to be processed. Prior to
1999, the Company performed contract-manufacturing services to the aerospace and
automotive industries through the operation of its high precision engineering
machine shop, which designed, manufactured and assembled specialized parts and
components. Since 1999, the Company has been focusing its efforts on developing
and marketing the Voraxial(TM) Separator. The Company is focusing its efforts on
a few key opportunities, including wastewater, grit/sand separation, oil-water
separation, exploration and production, marine/oil-spill clean up, bilge and
ballast treatment and manufacturing and food processing waste treatment markets.
The Company may be unable to continue as a going concern, given its limited
operations and revenues and its significant losses to date. Since 2001, the
Company has encountered greater expenses attributed to the development of the
Voraxial(TM) Separator and have had limited sales revenues from this
development. Consequently, the Company's working capital may be insufficient and
its operating costs may exceed those experienced in prior years. In light of
these recent developments, the Company may be unable to continue as a going
concern. However, the Company believes that the exposure received in the past
year for the Voraxial(TM) Separator has positioned the Company to generate sales
and that will provide it with sufficient working capital. The Company intends to
fund current working capital requirements through third party financing,
including the private placement of securities. However, the Company cannot
provide any assurances that it will be able to obtain adequate financing. If the
Company is unable to obtain adequate financing, it may reduce its operating
activities until sufficient funding is secured or revenues are generated to
support operating activities.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Principles of consolidation:
The consolidated financial statements as of September 30, 2004 include the
accounts of the parent company, Enviro Voraxial Technology, Inc., and its wholly
owned subsidiary, Florida Precision Aerospace, Inc. All significant intercompany
accounts and transactions have been eliminated.
[2] Cash and cash equivalents:
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
7
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[3] Property, plant and equipment:
Property, plant and equipment are stated at cost. The cost of maintenance and
repairs is charged against results of operations as incurred. Depreciation is
computed by the straight-line method over the estimated economic useful life of
the assets (5 - 20 years).
[4] Net loss per share:
Basic and diluted loss per share has been computed by dividing the net loss
available to common stockholders by the weighted average number of common shares
outstanding. The warrants and options have been excluded from the calculation
since it would be anti-dilutive. Such equity instruments may have a dilutive
effect in the future and include the following potential common shares:
Warrants 5,589,368
Stock options 3,679,666
---------
9,269,034
=========
[5] Inventory:
Inventory, which consists of components for the Voraxial(TM) Separator, is
priced at lower of first-in, first-out cost or market. Inventory includes
components held by third parties in connection with pilot programs.
As indicated in Note B [6], a significant estimate involves the value of the
Company's inventory. The value of the inventory was reduced to estimated market
value in prior periods. As this inventory is reduced through product sales, the
Company may experience profit margins in excess of what normally may be expected
to be achieved.
[6] Use of estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ. A significant estimate involves
the value of the Company's inventory.
[7] Income taxes:
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at year-end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary, to reduce
deferred tax assets to the amount expected to be realized.
8
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[8] Research and development expenses:
Research and development costs are expensed as incurred.
[9] Revenue recognition:
The Company recognizes contract revenue when earned. Revenues from Voraxial(TM)
Separators for non-pilot programs are earned when shipped. Shipments to third
parties in connection with pilot programs are not recognized as revenue and such
components are included in inventory as of September 30, 2004.
[10] Fair value of financial instruments:
Obligations under capital leases approximate fair value as the interest rates
applicable to these debt instruments are comparable to quoted market prices for
similar leases.
[11] Interim financial statements:
Financial statements as of September 30, 2004 are unaudited but in the opinion
of management the financial statements include all adjustments consisting of
normal recurring accruals necessary for a fair presentation of financial
position and the comparative results of operation. Results of operations for
interim periods are not necessarily indicative of those to be achieved or
expected for the entire year.
[12] Stock-based compensation:
The Company accounts for stock-based employee compensation under Accounting
Principles Board ("APB" Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," which was
released in December 2002 as an amendment to SFAS No. 123. The following table
illustrates the effect on net loss and loss per share if the fair value based
method had been applied to all awards.
Three months ended September 30, Nine months ended September 30,
2004 2003 2004 2003
---- ---- ---- ----
Reported net loss $ (357,000) $ (354,000) $(1,356,000) $ (931,000)
Stock-based employee compensation expense included
in reported net loss, net of related tax effects -0- 6,000 146,000 18,000
Stock-based employee compensation determined under
the fair value based method (5,000) (8,000) (201,000) (30,000)
----------- ----------- ----------- ------------
Pro forma net loss $ (362,000) $ (356,000) $(1,411,000) $ (943,000)
=========== =========== =========== ============
Basic and diluted loss per common share:
As reported $ (.02) $ (.02) $ (.08) $ (.06)
=========== =========== =========== ============
Pro forma $ (.02) $ (.02) $ (.08) $ (.07)
=========== =========== =========== ============
9
ENVIRO VORAXIAL TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[13] Recent Accounting Pronouncements:
In December 2003, the FASB issued interpretation No. 46R, "Consolidation of
Variable Interest Entities," in an effort to expand upon and strengthen existing
accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of variable interest
entities, including special-purpose entities or off-balance sheet structures.
The consolidation requirements of FIN No. 46R have a variety of implementation
dates. The impact of FIN No. 46R on the Company's financial position and results
of operations was not material.
NOTE C-EQUITY TRANSACTIONS
As of September 30, 2004 the Company sold an aggregate of 1,935,000 units in a
private placement offering resulting in gross proceeds of approximately
$1,451,000. The Company issued 1,935,000 common shares and issued 1,935,000
warrants to purchase common stock at $1.00 per share. In addition, the Notes
Payable (see Note D) was converted into 333,333 common shares and 333,333
warrants to purchase common stock at $1.00 per share. The placement agent also
received 265,250 warrants exercisable at $0.75 per share and 265,250 warrants
exercisable at $1.00 per share.
In January 2004, the Company issued 170,000 shares of common stock to a
consultant resulting in those shares having a value of $138,000. This value will
be amortized over the life of the consulting agreement, one year.
Also in January 2004, the Company sold 61,666 common shares and 61,666 warrants
to purchase common shares at $1.00 for proceeds of $37,000.
On January 15, 2004, the Company issued options to purchase an aggregate of
1,394,666 shares of our common stock to our chief executive officer and two
employees in consideration for such individuals converting accrued salaries in
the aggregate amount of $370,000 to equity in our Company. Options to purchase
697,333 shares of our common stock are exercisable at $0.60 and options to
purchase 697,333 shares of our common stock are exercisable at $1.00. The
options are exercisable for a period of five years commencing January 15, 2004.
The fair market value of the options issued as settlement of the accrued
salaries resulted in an additional compensation charge of approximately
$191,000. The stock options issued with an intrinsic value resulted in deferred
compensation charge of approximately $140,000.
In February 2004, the Company issued 30,000 options at an exercise price of
$0.71, as consideration for joining the advisory committee. This resulted in a
charge to earning of $19,000 as of March 31, 2004.
On June 30, 2004, the Company issued 7,100 shares of common stock for services
performed, which were valued at $5,700.
NOTE D- NOTES PAYABLE
During January and February 2004, the Company issued convertible notes amounting
to $250,000. These notes bear interest at 8% and are due on December 31, 2004.
The notes are convertible at a price of $.75 per share and one warrant to
purchase one share of common stock at $1.00 per share. The notes are
automatically convertible pursuant to the terms of a private placement initiated
10
in March 2004 and were converted pursuant to the terms of such private placement
in May 2004. (See Note C.)
Item 2. Management's Discussion and Analysis of Financial Condition and Plan of
Operations
General
Forward-Looking Statements:
The following discussion of the financial condition and results of operations
should be read in conjunction with our consolidated financial statements and
related notes thereto. The following discussion contains forward-looking
statements. Enviro Voraxial(TM) Technology is referred to herein as "the
Company", "we" or "our." The words or phrases "would be," "will allow," "intends
to," "will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project," or similar expressions are intended to identify
"forward-looking statements". Such statements include those concerning our
expected financial performance, our corporate strategy and operational plans.
Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of risks and uncertainties.
Statements made herein are as of the date of the filing of this Form 10-QSB with
the Securities and Exchange Commission and should not be relied upon as of any
subsequent date. Unless otherwise required by applicable law, we do not
undertake, and we specifically disclaim any obligation, to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statement.
Application of Critical Accounting Policies
The Company's consolidated condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America. Certain accounting policies have a significant impact on amounts
reported in the financial statements. A summary of these significant accounting
policies can be found in Note B to the Company's financial statements in the
Company's 2003 Annual Report on Form 10-KSB. The Company has not adopted any
significant new policies during the quarter ended September 30, 2004.
Among the significant judgments made in preparation of the Company's financial
statements are the determination of the allowance for doubtful accounts and
adjustments of inventory valuations. These adjustments are made each quarter in
the ordinary course of accounting.
Three Months ended September 30, 2004 and 2003
Net Sales
Our net sales increased to $2,000 for the three months ended September 30, 2004
as compared to no sales for the three months ended September 30, 2003. Revenues
relate to customers renting Voraxial(TM) Separators for evaluation and trials.
The Company is implementing a sales and marketing program for the Voraxial(TM)
Separator that management believes will result in an increase in revenues in
2004.
Research and Development expenses
Research and Development expenses decreased by 19% to $179,000 for the three
months ended September 30, 2004, down from $220,000 for the previous three
months ended September 30, 2003. Although the Company has finalized the
development of the Voraxial(TM) Separator, we are continuing expenditures for
specific industry applications for the technology.
11
General and Administrative expenses
General and Administrative expenses increased by 32% to $175,000 for the three
months ended September 30, 2004 up from $133,000 for the three months ended
September 30, 2003. The increase was primarily due to the expense associated
with 170,000 shares of common stock issued to a consultant resulting in those
shares having a value of $138,000 and being amortized over one year (term of the
consulting agreement). General and administrative activities supporting the
Voraxial Separator were also intensified in 2004.
Nine Months ended September 30, 2004 and 2003
Net Sales
Our net sales increased to $14,000 for the nine months ended September 30, 2004
as compared to 3,000 for the nine months ended June 30, 2003. Revenues relate to
customers renting Voraxial(TM) Separators for evaluation and trials. The Company
is implementing a sales and marketing program for the Voraxial(TM) Separator
that management believes will result in an increase in revenues in 2004.
Research and Development expenses
Research and Development expenses increased by 27% to $482,000 for the nine
months ended September 30, 2004, up from $380,000 for the previous nine months
ended September 30, 2003. Although the Company has finalized the development of
the Voraxial(TM) Separator, we increased expenditures for specific industry
applications for the technology.
General and Administrative expenses
General and Administrative expenses increased by 60% to $877,000 for the nine
months ended September 30, 2004 up from $549,000 for the nine months ended
September 30, 2003. The increase of $328,000 or 60% related primarily to the
issuance of employee stock options to settle previously accrued salaries and
170,000 shares of common stock issued to a consultant resulting in those shares
having a value of $138,000.
Liquidity and capital resources
For the nine months ended September 30, 2004 our working capital has increased
by $842,000 from December 31, 2003 to $453,000. This increase was represented by
an increase in cash of $290,000, an addition of prepaid insurance of $8,000, an
addition of prepaid consultant fees of $46,000 and a decrease in other current
liabilities of $498,000. Accrued salaries payable by the Company were reduced by
approximately $764,800 as three employees of the Company agreed to convert
$370,000 in accrued salaries for options to purchase an aggregate of 1,394,666
shares of the Company's common stock. In addition, approximately $313,300 of
current salaries and accrued salaries were paid in cash. Options to purchase
697,333 of those shares of the Company's common stock are exercisable at $0.60
per share and the balance of options to purchase 697,333 shares are exercisable
at $1.00 per share. The options are exercisable for a period of five years
commencing January 15, 2004.
Operating at a loss for the nine months ended September 30, 2004, negatively
impacted our cash position. We anticipate that we will begin generating revenues
and positive cash flow from the Voraxial(TM) Separator by the end of 2005. To
the extent such revenues and corresponding cash flows do not materialize, we
will require infusion of capital to sustain our operations. We cannot be assured
that we will generate revenues or that the level of any future revenues will be
self sustaining. Furthermore, we cannot provide any assurances that required
12
capital will be obtained or that terms of such required capital may be
acceptable to us.
The Company intends to fund current working capital requirements through third
party financing, including the private placement of securities. However, the
Company cannot provide any assurances that it will be able to obtain adequate
financing. If the Company is unable to obtain adequate financing, it may reduce
its operating activities until sufficient funding is secured or revenues are
generated to support operating activities.
In the beginning of 2004, we closed a private placement which commenced in 2003.
Under the private placement we received proceeds of $37,000 from the sale of an
aggregate of 61,666 shares of restricted common stock at $0.60 per share and
warrants to purchase 61,666 shares of common stock at $1.00 per share.
During March 2004, we also received $250,000 from the sale of convertible notes
to three investors. The notes convert into our securities pursuant to the terms
of a private placement we initiated during the three months ended June 30, 2004.
In May 2004, we commenced a private placement and at June 30, 2004, we had sold
an aggregate of 1,888,500 units of securities to 38 investors for gross proceeds
of $1,413,750. Each unit consists of one share of common stock at $.75 per share
and a warrant exercisable to purchase one share of common stock at $1.00. The
Company will pay a placement agent a commission of 10% of the gross proceeds and
a non-accountable expense allowance of 3% of the gross proceeds from the private
placement, and issue the placement agent warrants to purchase six shares of
common stock (three shares at $0.75 and three shares at $1.00) for each 20 units
sold in the private placement. In July 2004, we completed this private placement
by selling an additional 84,000 units to 3 investors for gross proceeds of
$63,000.
Continuing losses
We may be unable to continue as a going concern, given our limited operations
and revenues and our significant losses to date. Since 2001 we have encountered
greater expenses in the development of our Voraxial(TM) Separators and have had
limited sales income from this development. Consequently, our working capital
may not be sufficient and our operating costs may exceed those experienced in
our prior years. In light of these recent developments, we may be unable to
continue as a going concern. However, we believe that the funds we have received
from the private placement disclosed above will provide us with sufficient
working capital to operate for the next 12 months.
Recent Accounting Pronouncements
In December 2003, the FASB issued interpretation No. 46R, "Consolidation of
Variable Interest Entities," in an effort to expand upon and strengthen existing
accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of variable interest
entities, including special-purpose entities or off-balance sheet structures.
The consolidation requirements of FIN No. 46R have a variety of implementation
dates. The impact of FIN No. 46R on the Company's financial position and results
of operations was not material.
Item 3. Controls and Procedures
Evaluation of disclosure controls and procedures
As of the end of the period covered by this report, we carried out an evaluation
of the effectiveness of the design and operation of our disclosure controls and
13
procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under
the supervision and with the participation of our Principal Executive Officer
and Principal Financial Officer. Based upon that evaluation, our Principal
Executive Officer and Principal Financial Officer concluded that our disclosure
controls and procedures are effective in gathering, analyzing and disclosing
information needed to satisfy our disclosure obligations under the Exchange Act.
Changes in internal controls
There were no significant changes in our internal controls or in other factors
that could significantly affect those controls since the most recent evaluation
of such controls.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
Securities
On January 15, 2004, we issued options to purchase an aggregate of 1,394,666
shares of our common stock to our chief executive officer and two employees in
consideration for such individuals converting accrued salaries in the aggregate
amount of $370,000 to equity in our Company. Options to purchase 697,333 shares
of our common stock are exercisable at $0.60 and options to purchase 697,333
shares of our common stock are exercisable at $1.00. The options are exercisable
for a period of five years commencing January 15, 2004. Options to purchase
220,000 shares of our common stock were issued to Alberto DiBella. Options to
purchase 1,066,666 shares of our common stock were issued to John DiBella.
Options to purchase 108,000 shares of our common stock were issued to John
Combs. The issuance of the options to our employees was exempt from registration
under Section 4(2) of the Securities Act. The employees had access to
information concerning our Company and had the opportunity to ask questions
concerning the viability of our Company. The options issued to our employees
contain legends restricting their transferability absent registration or
applicable exemption.
In January 2004, the Company issued 170,000 shares of common stock to a
consultant resulting in those shares having a value of $138,000. This value will
be amortized over the life of the consulting agreement, one year. The shares
were issued pursuant to the exemption from registration under Section 4(2) of
the Securities Act. The consultant received information concerning the Company
and had the opportunity to ask questions concerning the Company. The shares
issued contain a legend restricting transferability absent registration or
applicable exemption.
In January 2004, we closed a private placement which commenced in 2003. Under
the private placement we sold an aggregate of 61,666 shares of restricted common
stock at $0.60 per share and 61,666 warrants to purchase 61,666 shares of common
stock at $1.00 per share to four investors for proceeds of $37,000 during the
three months ended June 30, 2004. The warrants are exercisable for a period of
five years from the date of closing. The transactions were exempt from
registration under Section 4(2) of the Securities Act. The investors received
information concerning the Company and had the opportunity to ask questions
concerning the viability of the Company. The shares and warrants contain legends
restricting their transferability absent registration or applicable exemption.
14
On February 18, 2004, we issued options to purchase an aggregate of 30,000
shares of our common stock exercisable at $0.71 per share to three individuals
as consideration for joining our advisory committee. The options are exercisable
until February 18, 2006. The options were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act. The advisors received
information concerning our Company and had the opportunity to ask questions
concerning the viability of our Company. The options contain legends restricting
their transferability absent registration or applicable exemption.
In February 2004, we extended the exercisable life of certain warrants to
purchase an aggregate of 243,200 shares of common stock issued in 2000 for a
period of one year. The warrants now expire in February 2005.
In February 2004, we extended the exercisable life of certain warrants to
purchase an aggregate of 200,000 shares of common stock issued in 2001 for a
period of one year. The warrants now expire in April 2005.
During January and February 2004 we issued convertible notes to three
individuals in the aggregate amount of $250,000 through a convertible note
agreement whereby the notes automatically convert into securities of the Company
pursuant to the terms of a private placement initiated in March 2004. Effective
May 5, 2004, the notes converted into 250,000 units described below. The
issuance of the notes and subsequent conversion was exempt from registration
under Section 4(2) of the Securities Act. The note holders received information
about the Company, and had opportunities to ask questions about the Company. The
securities issued to the investors contain the appropriate legend restricting
transferability absent registration or applicable exemption.
From May 2004 through June 30, 2004, the Company sold an aggregate of 1,851,000
units of securities to 38 investors for gross proceeds of $1,388,250 under the
private placement. Subsequent to the period ending June 30, 2004, the Company
completed the private placement, selling a total of 1,935,000 units to 3
investors and receiving gross proceeds of $1,451,250. The Company has paid a
placement agent a commission of 10% of the gross proceeds and a non-accountable
expense allowance of 3% of the gross proceeds and issued the placement agent
warrants to purchase six shares of common stock (three shares at $0.75 and three
shares at $1.00) for each 20 units sold in the offering. Each unit consisted of
one share of restricted common stock at $0.75 per share and one warrant to
purchase one share of common stock at $1.00 per share. The warrants are
exercisable for a period of five years from the date of closing. The
transactions were exempt from registration under Regulation D, Rule 506 of the
Securities Act. All of the investors were deemed accredited. The investors
received information concerning the Company and had the opportunity to ask
questions concerning the viability of the Company. The shares and warrants
contain legends restricting their transferability absent registration or
applicable exemption.
On June 30, 2004, we issued 7,100 shares of our common stock to an individual in
consideration for services rendered. The shares were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act. The
consultant received information concerning the Company and had the opportunity
to ask questions concerning the Company. The shares issued contain a legend
restricting transferability absent registration or applicable exemption.
15
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-B
31.1 Form 302 Certification of CEO
31.2 Form 302 Certification of Principal Financial Officer
32.1 Form 906 Certification of CEO
32.2 Form 906 Certification of Principal Financial Officer
(b) Reports on Form 8-K
None.
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned as a duly authorized officer of the Registrant.
Enviro Voraxial Technology, Inc.
By: /s/ Alberto DiBella
---------------------------
Alberto DiBella
Chief Executive Officer and
Principal Financial Officer
DATED: November 11, 2004
17